On the offensive

In 2020 RenaissanceRe established itself as part of the Class of 2020 in terms of capital raising, with a $1.1bn equity issue. What follows is not a regular Q&A with chief executive officer Kevin O’Donnell, but excerpts from publicly available comments O’Donnell made in a number of calls.

“In line with retaining more risk, we increased our ownership in DaVinci and Medici.”
Kevin O’Donnell, RenaissanceRe

How much capital did you raise and how?

In early June 2020, RenaissanceRe raised $1.1 billion in common equity through a public offering and a concurrent private placement with an aim to deploy this capital at, and subsequent to, the January 1 renewal.

Have you hired any new key figures/senior management?

Unrelated to the capital raise, RenaissanceRe hired two new senior executives with global corporate roles, based in Bermuda. Ann Manal is senior vice president and chief human resources officer, and Shannon Bender is senior vice president and group general counsel.

“The second opportunity for deploying capital was by retaining more risk.”

What is your initial business plan for how you will deploy the funds?

Q4 2020 earnings call, January 2021:

We were one of the first to raise capital with a highly successful common equity offering. To be clear, this capital raise was exclusively offensive, and as I mentioned, has now been fully deployed into our underwriting portfolio. Consistent with our message during the capital raise, we have deployed the capital through a combination of two main activities, growing into an improving market and retaining more risk.

Starting with organic growth, we began planning for the January renewal early in the year with focused and coordinated approach across the company. This allowed us to expand our value proposition to our customers and brokers and in an evolving market, providing a clear message around appetite and tolerance.

Our fortress balance sheet permitted us to engage our customers early in the renewal cycle, understand their needs and have productive conversations about how we could help solve their biggest problems.

The second opportunity for deploying capital was by retaining more risk. At January 1, we reduced the ceded protection that we purchased as a percentage of our gross premium by several percentage points. In line with retaining more risk, we increased our ownership in DaVinci and Medici and now have $1 billion co-invested in various joint ventures, consistent with our strategy of strong alignment with our partners.

As I mentioned already, the result of this diligent planning and strong execution is that we now believe we will grow net written premiums in 2021 by about $1 billion, with an increase in expected profit.

“We expect to continue to have ample dry powder to deploy into new opportunities.”

Why did you feel now was a good time to raise additional capital?

Q2 2020 earnings call, July 2020:

We are confident in our ability to execute into an improved market and believe the opportunity will persist for several years. Prior to the emergence of COVID-19, P&C markets were already experiencing constrained supply and elevated demand, resulting in upward pressure on rates.

Numerous factors led to this supply-demand imbalance. Property markets have experienced three consecutive years of elevated catastrophe activity, resulting in large losses and substantial trapped capital.

Casualty markets were set by significant loss inflation, caused by historically large jury verdicts and increasing frequency of severity. This pre-existing rate trend was accelerated by COVID-19 and the deep economic recession that follows. COVID-19 will be among the largest insured losses in history.

The loss will develop slowly and will add uncertainty, which drives demand for reinsurance as buyers look to reduce volatility. At the same time, the increase in demand has been mirrored by a reduction in supply caused by increased underwriting discipline in dislocated retro markets.

This confluence of factors has resulted in material rate increases that will impact almost all lines for an extended period, which we expect will create opportunities for us over the next several years. For all the reasons we concluded that this was the ideal time to raise new equity.

What are your predictions for reinsurance market conditions in 2021?

Q4 2020 earnings call, January 2021:

We found many attractive opportunities to grow existing and new customers at the January 1 renewal and believe that the market will continue to harden through 2021.

At January 1, we saw opportunities for profitable growth in both of our segments and across our platforms, resulting in the full deployment into our underwriting portfolio of the $1.1 billion raised last June. We also raised and deployed additional capital in our joint venture business.

As a result, in 2021, we expect to grow our net premiums written by approximately $1 billion and believe that we have materially increased the profitability of our underwriting book. We expect to achieve these outcomes while keeping our tail risk consistent with last year’s, on a percentage of equity basis. Due to the efficiency and diversity of our portfolio, we expect to continue to have ample dry powder to deploy into new opportunities.

From most perspectives, 2020 was a difficult year. Across our industry, COVID-19 strained normal business practices and stressed employees. Climate change fuelled record-breaking hurricanes and wildfires, and decreasing interest rates impacted future returns on investment portfolios.

But where others perceive only problems, the best underwriters recognised outsized opportunities. We raised material amounts of offensive capital in anticipation of these opportunities and executed strongly in one of the best January 1 renewals in many years, growing expected profit across our business lines and geographies.

As we head into 2021, I believe we will continue to find outsized opportunities to create shareholder value.

Image courtesy of Shutterstock / Flamingo Images / OSTILL is Franck Camhi

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